More Evaporating Billions at Morgan Stanley

Morgan Stanley's earnings this morning are truly dreadful. When your stock is trading around $15 a share, a quarterly loss of $2.24 per share is a big deal. But in fact it's worse than that: the bank recorded "net revenue of $2.7 billion from the widening of Morgan Stanley's credit spreads". That's entirely legitimate from an accountancy perspective, but those aren't the kind of earnings any bank wants. Take them away, and the quarterly loss becomes $5 a share. Ouch.

Yet the stock is down only 60 cents as I write this, at about $15.50 a share -- it closed below $14 on Monday, and somehow the combination of Goldman's earnings and the Fed's rate cut have managed to save the day for Stanley.

It is worth noting that the analysts completely whiffed this one:

The average estimate of 16 analysts surveyed by Bloomberg was for a 34-cent loss, with no estimates exceeding $1.15.

Lucky no one listens to them.

On the other hand, Morgan Stanley does seem to be further along than Goldman Sachs in its deleveraging process: its balance sheet has shrunk by a third in the past three months, to just $658 billion. That compares to a decline of 18% at Goldman, to $885 billion. No one knows where either bank will end up, but John Mack seems to have grasped the nettle earlier and harder than Lloyd Blankfein. Maybe that's why his stock isn't falling further this morning: it's fallen so far already.